Unlike the volatile markets in August, September proved to be choppy all around, whether it be financials, energies, or grains. The four Attain Managed Futures funds were unable to truly find return drivers in these markets, besides the Trend fund up 1.70% on the month. Here’s how the funds are doing in 2015 thus far.

Disclaimer: Past performance is not necessarily indicative of future results

Managed Futures Mutual Funds = The Morningstar Managed Futures Category Performance, showing an average of all Managed Futures mutual funds on their platform. Performance as of April 30th, 2015.

Annual DD = The worst drawdown experienced by the strategy for the calendar year.

Disclaimer: *The return numbers herein include estimates of the full month performance for the previous month, and include assumptions for accrued fees, the effect of additions and redemptions, and other factors which may cause the final numbers compiled by the fund administrator to differ slightly.

You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. Commodity Futures Trading Commission (CFTC) rules require delivery of a disclosure document at or prior to the time an advisory or subscription agreement is delivered. The disclosure document includes the principal risk factors and costs of participating in a particular CTA or CPO program including the potential impact of fees and expenses, the “break-even point” expressed both as a dollar amount and as a percentage return necessary to recover one’s initial investment, if applicable. The CFTC has not passed upon the merits of participating in any one particular investment or on the adequacy or accuracy of any one disclosure document.

Thanks to all of the customers, managers, vendors, and the folks at CTA Intelligence for recognizing all of the hard work we do here, with our second straight Best Introducing Broker award. We don’t do it for awards… in fact we like to give out the awards around here (see our Top 15 managers and ‘Commy’ awards); we do it because it is challenging, because it is fun, and because we love doing it.

We’ll say simply, Thank You. Thanks to those who have been clients going on 13 years. Thanks to those who fought with us during the PFG crisis. Thanks to the CTA’s who manage our clients’ funds with such care and diligence. Now, back to work!

It’s 5 years into the one of the biggest stock market bull runs of all time, and all looks fine for the aging bull even after this brief downturn in October. For many, this has been a great run and they’ve been doing quite well during it. For many others, it’s been rather annoying, as their “smart” choice of diversification has under performed recently.

But here’s the deal – it’s not about beating the S&P 500. You’re on the quest to find a portfolio that best matches your needs before retirement. For some, that’s so far in the future, you’re not worrying about volatility. For some, it’s within reach, and you want to protect what you have before something bad happens. For some, you’re looking for something in between the two. So what’s your “Perfect Portfolio?” It’s not an easy question to answer, and many pros have tried (check out Meb Faber’s impressive list of asset allocation strategies and stats here). The basic portfolios to consider in our mind are the following:

While one month’s performance is no way to judge an investment that has 3 to 5 year cycles, a glance at who’s doing well in the different environments month to month can be a useful data point at times. Here’s the top managed futures performers (by return only) for the month gone by:

Note: These programs are not necessarily recommended by Attain. For a list with much more thought behind it – check our semi-annual rankings (updated July 2014).

(Disclaimer: past performance is not necessarily indicative of future results. Programs listed consist of those with at least a 3 year track record tracked by Attain Capital Management for investment by clients via managed accounts and do not represent all available programs in the managed futures universe. The Max DD represents the worst drawdown of all time for the listed programs).

You got to hand it to the marketing folks over at Wisdom Tree…. No sooner had the ink dried on Managed Futures good 3rd quarter and the Dow hit new 8 month lows this week than we started to see Wisdom Tree advertising their Managed Futures ETF ($WDTI) on CNBC. Marketing 101 = strike while the iron’s hot.

But how much “managed futures” exposure are you really getting with this product. We’ve looked under the hood of WDTI before, back when it launched in 2011, and thought it was high time to meet their managed futures marketing blitzkrieg during this stock market correction with some data and information on how well this product does what it purports to do (track managed futures).

WDTI is a replication strategy

WDTI doesn’t track a managed futures index made up for actual managed futures managers providing alpha for their clients and managing real money. WDTI tracks something called the Diversified Trend Indicator (DTI), created by Victor Sperandeo, aka “Trader Vic”. The DTI tracks 24 markets (50% financials, 50% commodities) on a monthly basis and is designed to reflect rising and falling price trends in those markets. That is somewhat similar to the models used by systematic multi-market managed futures programs, but not completely similar. It is an attempt to capture the bulk of what they do at a lower price point, without the sophistication around the edges.

WDTI hasn’t replicated Managed Futures very well

So how has the WDTI done in replicating managed futures exposure… not great. Since its launch, it’s trailed the managed futures index (which we would think should be its benchmark) by 1,117 basis points (11.17%). And what about a real program, not just the index. It’s trailed Covenant Capital’s Aggressive program, the same model used by our Trend Following Fund by 2,588 basis points (25.88%) since it was launched. And that’s after Covenant’s 2 & 20 fees. Past Performance is not necessarily indicative of future results.

While the ETF itself only goes back to 2007, the DTI goes back quite a bit further, allowing us to be able to see just how the indicator has done in past crisis periods. You can see it has underperformed the managed futures index in past crisis periods.

(Disclaimer: past performance is not necessarily indicative of future results)

DTI is becoming less and less correlated with Managed Futures

Notice the interesting pattern below, where the DTI has become less and less correlated with the managed futures index over the years. Why? Because one of them (managed futures) is the results of actual managers continuously doing research and improving their models. And one is a single indicator designed years ago.

(Disclaimer: past performance is not necessarily indicative of future results)

25% of the portfolio is in just 2 markets

With 13% of the portfolio tracking Euro currency futures and 12% tracking Japanese Yen futures, a full quarter of the portfolio is in just two markets. Watch out if those two are in an extended sideways period without trends.

WDTI doesn’t go short energy…

We just don’t get this one. Why the arbitrary rule just for one sector of the portfolio. They say it is to protect against the risk of ruin, as energy markets can spike on geo political events. But at the same time they allow short trades in Natural Gas &*^%. And have you seen the volatility in Cocoa, or Copper, or Coffee – talk about price spikes.

There are no intra-month position adjustments

We don’t quite get this one either. What if a trend starts, or ends, during the middle of a month? Guess you get in or out late. This surely cuts down on Transactional costs and keeps things simple, but we’re sure it cuts down on performance also.

WDTI is Average, by design

At the end of the day, Wisdom Tree looks to have decided to try and replicate the beta of managed futures via an imperfect proxy, the DTI. What will that look like moving forward? The “average” performance of the managed futures index? Something less? Something more? ‘Average’ looks less and less likely as the indicator continues to diverge from the live managers doing trend following strategies, with ‘less’ possible if there are no trends in the euro and yen while a short trend in energy, and a ‘more’ scenario dependent on trends in that concentrated currency exposure and hopes of an uptrend in energy.

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DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. You should not rely on any of the information as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments.

The entries on this blog are intended to further subscribers understanding, education, and - at times - enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The performance data for various Commodity Trading Advisor ("CTA") and Commodity Pools are compiled from various sources, including Barclay Hedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on RCM’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by RCM, and averaging of various indices designed to track said asset classes.

The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.

The owner of this blog, RCM Alternatives, may receive various forms of compensation from certain investment managers highlighted and/or mentioned within the blog, including but not limited to retaining: a portion of trade commissions, a portion of the fees charged to investors by the investment managers, a portion of the fees for operating a fund for the investment managers via affiliate Attain Portfolio Advisors, or via direct payment for marketing services.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

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Disclaimer

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.